On May 10, when American private equity fund TPG Capital scored a seven-fold return in as many years by exiting its investment in Shriram Transport Finance, it joined a growing line of PEs to travel down this road. It worked like a mathematical formula. Invest in a Shriram Group company, stay invested for five to seven years, and make a bumper exit.

Even in the past nine months, when PEs faced some of the toughest conditions they have ever faced in India, funds have made four exits from Shriram companies, characterised by TPG's 9.9% stake sale in India's largest truck financier to Ajay Piramal for $304 million (Rs 1,652 crore). In the past 8 years, 16 PE funds invested $675 million in the Shriram group companies, run by the affable, 76-year-old R Thyagarajan. The group is valued at about $1.07 billion (around Rs 6,000 crore) at present.

Credit also goes to the man who has delivered such stellar growth: the loan book (loans disbursed to customers) of Shriram Transport Finance has grown 50 times since 2002, from Rs 778 crore to Rs 32,000 crore. "We were only half-convinced when we looked at the company. Then, we realised it was built on strong fundamentals," says Ashish Dhawan, former chief executive of ChrysCapital, a PE fund. "Thyagarajan's unique leadership style of empowering his employees and common-sense approach, rather than academic management style, accelerated the company's growth." ChrysCapital earned a 10-fold return in four years when it exited from Shriram City Union Finance, a non-banking finance firm, in 2009.

POWER OF PARTNERSHIPS

For Thyagarajan, partnerships have always been a vehicle for growth, be it with companies, PE funds, partners or employees. His entrepreneurial journey started with his chit fund business in 1973.

Yet, even after five years and deposits of Rs 500 crore, the business did not do well. "The regulatory environment was strangulating us and we realised it after getting into it," says Thyagarajan. But the goodwill and customer friendships helped him when he entered the second-hand truck financing business, in 1979. This time, he turned to four friends for Rs 5 lakh capital and partnered with Ashok Leyland and Tata Motors. "I think Thyagarajan invented the concept of bottom of the pyramid before academicians," says R Seshasayee, vice-chairman of Ashok Leyland, India's second largest truck maker. "We invested in the company in the early stage fascinated by his focus on the second-hand vehicle market and finding opportunities at the bottom of the pyramid."

MANTRA FOR SUCCESS

Thyagarajan's recipe for success is a mix of employee motivation, amicable relationship with partners and insulating the management from his family. "The uniqueness of Thyagarajan is his courage to blaze a new trail," says Seshasayee, who was on the board of Shriram Transport Finance in its early stages. "He believed in internal entrepreneurship than internal controls."

"RT (as Thyagarajan is affectionately called by his employees) always advised us to work with an entrepreneurial spirit. This gives me a feeling that I am the owner of the company," says Umesh Revankar, who joined Shriram Transport Finance as an executive trainee way back in 1987 and rose up to become its managing director. "I work more like a businessman," says Revankar, adding that he declined job offers paying two to three times his present salary.

The spike for the group coincided with PE entering its picture in the early part of the century. "Shriram Transport was a unique and differentiated model," Puneet Bhatia, managing director, TPG, told ET in an earlier interaction. "But it was not open to external constituents, had zero research coverage and a board filled with insiders. It could build a loan book of Rs 5,000 crore, 25 years since its inception." In May 1998, the Reserve Bank of India even warned customers against investing in the Shriram Group. "We opened all our offices for any customer to withdraw their deposits," says Thyagarajan. "Everything settled in few days. However, the RBI is yet to give reasons for the warning."

According to Thyagarajan, the group was unable to source cheap funding because of its average credit rating. "We were not following a lot of parameters rating agencies required," he says. Bhatia brought in Ranveer Dhawan, a former Citibank hand. ''Finally, after much improvement, we received a better rating, which we could use to negotiate with lenders and save interest costs." Breaking away from the tradition of Indian business families passing wealth to the next generation, Thyagarajan has transferred all his ownership in its financial services business to the Shriram Ownership Trust.

Neither Thyagarajan nor his two sons own a single share in the group, and are eligible for a share of the trust only if the trustees agree. The trust owns 24% of Shriram Capital, the group's holding company for financial services. As reward for their role in growing the company, senior employees — 37 at last count — have been given 1.5-2.5% each of the trust's ownership, which they can sell back when they leave or retire.

"Capital is not important...people who worked and built the organisation are important," says Thyagarajan who lives in a 1,300 sq ft house in Chennai and drives a Maruti Swift owned by his wife or travels in a Santro for official purposes. He depended on talent from smaller cities and towns to build his business. Thyagarajan wants to leave his legacy to the next generation of his employees. "They may run the way we managed it,'' he says. "Some will be desirable and some undesirable.''